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Goldman Reiterates The Case For A Very Disappointing NFP Number
With just half an hour left until the NFP report, all bets should have been made by now if the number will come above the consensus of 68K, or well below it. One who is confident the number will be a big disappointment is Goldman's Jan Hatzius and team who lists the following reasons for why the number will not meet Wall Street's traditional permabullish outlook: Weakened hiring, due to a deterioration in households' assessment of the labor market, weaker real time economic employment indices, fewer online job ads, moderate ADP employment gains; the picture is not better on the demand side as jobless claims remain low, and announced job cuts are rising. There is always a strawman in the form of the Verizon strike which would cut about 45,000 people from the NFP, but laslty, and most importantly, Income tax receipts have dropped substantially in recent weeks: an indication that either employees are paying less in taxes, or there are just less of them. Goldman's summary: "Taken together, our models suggest a deceleration in the pace of payroll growth in August. We therefore expect a gain of 25,000 in the 's report (revised down from 50,000 previously)." Also, let's not forget that the Fed needs some ammunition if it wishes to proceed with announcing QE3 at the September 21 FOMC meeting- yesterday's ISM certainly did not provide it.
Full report:
Information received since July's decent employment report–when nonfarm payrolls rose 117,000 on the month–suggests that the pace of job creation has slowed in August. In particular:
1. Hiring appears to have weakened:
- Deterioration in households' assessment of the labor market. The gap between households viewing jobs as "plentiful" as opposed to "hard to get" in the monthly Conference Board consumer confidence survey widened sharply in August (to -44.4 from -39.7 in July). Since its most favorable read this year in April this differential has now deteriorated by more than 7 points, suggesting that households have become even gloomier in their assessment of labor market conditions.
- A weaker employment index in the ISM manufacturing survey. Although the August ISM (Institute for Supply Management) manufacturing report beat expectations, the employment component of the survey deteriorated 1.7 points to 51.8. The employment component has now fallen more than ten points during the last six months, a decline usually associated with a marked downshift in the pace of hiring.
- Fewer online job ads. Online advertised vacancies–as measured by the Conference Board's Help Wanted online data series–have declined by an average of 160,000 during the last three months (down 100k, 217k, and 164k in June, July and August, respectively). The last time online vacancies declined this much during a three month period was in early 2009 at the height of the "Great Recession."
- Moderate ADP employment gains. The ADP forecast of private payroll employment for August was 91,000, below both the June and July reports (which showed gains of 144,000 and 109,000, respectively). Although the ADP report has been a poor month-to-month predictor of the Labor Department’s payroll gain, it is nonetheless consistent with a slowing in private sector hiring in August.
2. Firing remains low, at least for now:
- Jobless claims remain low… Initial unemployment claims averaged 410,000 per week in August, with the four-week average drifting down to 404,000 in the week of the August employment survey (August 6-13). Unlike many other indicators, claims have thus far not deteriorated in August.
- …but announced job cuts are rising. The Challenger, Gray, and Christmas monthly report on layoff announcements tallied 61,000 and 58,000 job cuts in seasonally-adjusted terms in July and August, respectively. These announced layoffs are considerably higher than the 40,000 per month reported for the first half of the year, suggesting that companies have started to lay off workers.
3. The Verizon strike should lower the reported payroll number. Starting August 7, about 45,000 Verizon Communications employees went on strike for two weeks (and returned to work on August 22), which should lower the BLS payroll count by an amount of this magnitude. (Note, however, that the ADP data measures the number of persons included in firms' payroll processing systems, and is therefore not affected by strikes. Adjusting the ADP number for the strike is thus also consistent with our below-consensus payroll forecast.)
4. Tax receipts have weakened in recent weeks. Data on withheld income and employment tax receipts can also help signal changes in the pace of job creation. These data—released each business day at 4pm by the US Treasury for the prior day—are a timely but noisy indicator. We have smoothed this series in an attempt to extract the underlying trend from calendar effects and seasonality (See “Daily Tax Receipts: Timely But Noisy,” US Daily, July 14, 2010). The resulting series captures quite well the initial phase of the recovery in late 2009/early 2010 and the mid-2010 slowdown. Although it is difficult to disentangle trend from noise on a short-term basis, tax receipts appear to have weakened during the last few weeks (see exhibit below).
Income and Employment Tax Receipts Have Weakened
Taken together, our models suggest a deceleration in the pace of payroll growth in August. We therefore expect a gain of 25,000 in tomorrow's report (revised down from 50,000 previously).
Despite weak employment gains, we expect the unemployment rate to remain flat at 9.1% due to weak labor force growth. The labor force participation rate—the share of the working-age population working or looking for work—has continued its decline this year, hitting the lowest point since January 1984 at 63.9% in July. A few weeks ago we showed that the "structural" drivers of participation—including population aging and "secular" participation trends within specific demographic groups—should continue to push down the aggregate participation rate going forward. And our cautious outlook for activity suggests that the "cyclical" part of participation will barely offset the structural decline. (For details see " Labor Force Participation: No Rebound in Sight," US Daily, August 17, 2011.) Our analysis suggests that the labor force participation rate will continue to decline over the next couple of years and thus dampen the effect of weak hiring on the unemployment rate.
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Goldman is credible
from market standpoint and real time fin data analysis labor report WILL BE BETTER THAN EXPECTED AND PROBAbLY 100+ ths.. alx
I argued opposite in another thread, but I'm beginning to think you're right, rabbit. Everything overnight priced in an ugly NFP. Anyone who placed bets on the other side of that would make for a nice windfall heading into Labor Day.
hatzius wrote the number.
Short answer: it's going to fucking suck!!!!
Short answer: it's going to fucking suck!!!!
8.9
Looks like they haven't got enough movement to the correct side of the bet.
Funny bookies, these GS guys are: unable to adjust the odds, they just make sure the money distribution aligns to what the algos and Blacks models prices 'em at.
we will see, numbers in a few minutes
NFP above 25k - market up on huge beat of numbers
NFP below 25k - market up on QE3
Step 1: Lower expectations
Step 2: Meet lowered expectations
Step 3: Dow 300+ on met expectations!
Else: Miss lowered expectations = QE3 = Dow 3000+
Fuck these manipulators. The number will be seen as a big "positive" in order to bring more suckers into the casino. Too many people at the bond tables and they need to get them back over to the equity tables.
Our models show that it's going to be a very disappointing jobs number. Please hold as we recalibrate our robots for the upside surprise.
this is all BS, the market is waiting for the Obuma's jobs speech..he is really really going to focus on jobs this time..the main theme will be travel and leasure industry tax cuts..forcing all golf courses to have human caddies and each hotel motel a nigerian maid per room.
50k less than concensus, and that doesn't count 45k verizon strikers.
Stick a fork in it.
They're trying lift expectations for this by guiding lower! That way, when the real number is released, it will sound better than expected.
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